China Communications Services Corporation Limited

Hot Topics

Q1. How was the operating performance of the Company in 2014? Why the net profit
       continued to record negative growth? Why the free cash flow turned positive from
       negative and achieved significant improvement?
In 2014, in face of the complex and volatile internal and external operating environment, the Group adhered to its market-oriented approach, allocated its resources adaptively for the expansion of the three major customer markets, and closely followed the pace of network construction and higher outsourcing demand of maintenance of domestic telecommunications operators. The Group recorded total revenues of RMB73,176 million for the year, representing a year-on-year increase of 6.9%. During the year, the reduction of service charge and the implementation of the “VAT Reform”, Labour Contract Law and other new industry policies imposed extra pressures on the Group in terms of competition and costs. In addition, the Group adopted a more prudent approach in financial management in 2014. As a result of the aforementioned factors, profit attributable to equity shareholders of the Company amounted to RMB2,150 million for the year, representing a year-on-year decrease of 3.9%.

The Group continued to strengthen the management of cash flow and accounts receivable through effective settlement and collection work. Free cash flow for the year was RMB833 million, representing a significant improvement from RMB-324 million for 2013.
Q2. How was the development of the domestic telecommunications operator market in 2014?
       In light of the issuance of 4G licenses, how are the prospects of the domestic
       telecommunications operator market?
In 2014, affected by the progress of 4G licenses issuance in China, the domestic telecommunications operators showed an imbalanced pace of network construction investment between the first half and second half of the year. The Group closely followed the pace of network construction investment, accelerated its business development later in the year, grasped the opportunities arising from the increasing demand of outsourcing maintenance services from our customers by leveraging on our advantages in integrated services of construction and maintenance, and provided quality and differentiated solutions for telecommunications operators. In 2014, revenue from domestic telecommunications operators increased by 8.8% compared to that of the last year, representing 64.4% of the total revenues. The domestic telecommunications operators remained the most important contributors of the operating results of the Group.

On 27 February 2015, the Ministry of Industry and Information Technology announced the issuance of operation permit for the “LTE/4G digital cellular mobile service (LTE FDD)”. It is expected that domestic telecommunications operators will put more effort in network construction and will continue to outsource their maintenance business so as to focus on their core business, which will bring valuable opportunities to the Group to expand such market.
Q3. How were the performances of domestic non-operator market and overseas market in
       2014? How are their future prospects??
In 2014, adhering to the principle of “efficient development”, the Group actively expanded the domestic non-operator market and overseas market. While pursuing reasonable growth, the Group scaled down the development of certain businesses with low operating efficiency, and focused more on the optimization of revenue structure and the enhancement of income quality. Total revenues from these markets increased by 3.7% as compared with the previous year, of which revenue from domestic non-operator customers reached a year-on-year growth of 4.4% and represented 30.4% of the total revenues, and revenue from overseas customers recorded a year-on-year decline of 0.6% and represented 5.2% of the total revenues. The Group continued to optimize the revenue structure of overseas customers by scaling down the development of certain businesses with low operating efficiency and increasing the proportion of turnkey projects to overseas revenue. During the year, revenue from overseas turnkey projects accounted for 51% of overseas revenue, representing a year-on-year increase of 9 percentage points. In view of the transformation and upgrade of the domestic economy and the complicated and ever-changing foreign environment, the Group believes that the continuous enhancement of the development quality in the two new markets provides a favourable pre-requisite for the sustainable development of the Group.

Looking into the future, the Group believes that China is developing strategic emerging industries, accelerating informatisation of the society and boosting information consumption, all of which will provide ample opportunities in the domestic non-operator market of the Group. Currently, the demand of telecommunications infrastructure in the Middle East and Africa remains strong. In light of the “Going Abroad” of Chinese capital and enterprises and “One Belt and One Road” strategies of China, it is believed that the potential of overseas market is huge.
Q4. What was the main driver for the significant growth in network maintenance business
       of the Company in 2014?
In addition to our focus on the business opportunities from the capital investment of domestic telecommunications operators, the Group also sought business opportunities from their operating expenditure and continuous demand of maintenance outsourcing. Revenue from network maintenance increased by 18.3%, more than doubled in terms of the growth rate as compared with the previous year (In 2013, revenue from network maintenance of the Group was RMB6,884 million, representing a year-on-year increase of 7.3%.), and the relevant incremental revenue accounted for nearly 27% of total incremental revenues.

In 2015, the Group will continuously focus on the opportunities from the operating expenditure and needs of customers to provide competitive one-stop construction and maintenance solutions. The Group will vigorously develop businesses in network maintenance and network optimization, and strive for breakthroughs in high-end maintenance, collaborative logistics and energy-preserving products.
Q5. What are the impacts to the business development of the Company in relation to the
       establishment of the Tower Company?
The Company believes that the establishment of the Tower Company will promote resources sharing of telecommunications infrastructure facilities among the telecommunications operators and environment protection, lower the overall investment scale and improve investment efficiency of telecommunications infrastructure facilities. In 2014, pursuant to the arrangement for the establishment of the Tower Company, the Group commenced the relevant work in relation to our preferential treatment and non-competition arrangements with the Tower Company, and undertook some construction and maintenance businesses. The Group will have new business opportunities under the preferential treatment and non-competition arrangements with the Tower Company.

(Please refer to the announcement on 11 July 2014 for more details)

Basic Information

Q1. What kind of Company is China Comservice?
China Comservice (China Communications Services Corporation Limited) is a leading service provider in the PRC that provides integrated support services in the informatization sector including telecommunications, media and technology. It is also the largest telecommunications infrastructure service provider in the PRC. Our services include telecommunications infrastructure services (TIS) covering design, construction and project supervision and management; business outsourcing services (BPO) covering management of infrastructure for information technology, distribution of telecommunications services and products, and general facilities management; applications, content and other services (ACO) covering system integration, software development and system support, value-added services and other services. (Please refer to "Corporate Profile" and "History" for more details)
Q2. When was China Comservice listed?
The Company was listed on the Stock Exchange of Hong Kong on December 8, 2006. The offering price was HK$2.20 per share. (Please refer to "Corporate Information" for more details)
Q3. Who are the major customers of China Comservice?
All major telecommunications operators in China, namely, China Telecommunications Corporation ("China Telecom"), China Mobile Communications Corporation ("China Mobile") and China United Network Communications Group Company Limited ("China Unicom") are our customers. We also provide services to domestic non-operator customers and overseas customers. In 2014, revenue from domestic telecommunications operator customers accounted for 64.4% of total revenues, revenue from domestic non-operator customers accounted for 30.4% of total revenues and revenue from overseas customers accounted for 5.2% of total revenues.

While further developing domestic telecommunications operator market, the Group has also endeavored to expand the domestic non-operator market. The Group proactively provides services, such as smart cities solutions, city pipelines engineering, intelligence building and cloud computing data center construction, to key customers such as government agencies and customers in the industries of construction and property, transportation, etc.

Other than China, the Group's business also covers dozens of countries and regions globally, and its overseas customers are mainly located in the markets including Africa, the Middle East and Southeast Asia.
Q4. Who are the major shareholders of China Comservice?
China Telecommunications Corporation is our controlling shareholder which holds 3,559 million domestic shares, representing 51.4% of our total issued shares. In addition, China Mobile Communications Corporation, China United Network Communications Group Company Limited and China National Postal and Telecommunications Appliances Corporation hold 608 million, 236 million and 131 million domestic shares, representing 8.8%, 3.4% and 1.9% of total issued shares respectively. The public holding is 2,391 million H share, representing 34.5% of our total issued shares. (Please refer to "Shareholding Structure" for more details)
Q5. What are the telecommunications infrastructure services (TIS) provided by China
The Group is the largest telecommunications infrastructure service group in the PRC, providing a full range of telecommunications infrastructure services to telecommunications operators in China and overseas. These services include planning, design, construction and project supervision for fixed line, mobile, broadband and support systems. The Group also provides integrated solutions for ancillary communications networks and integrated informatization solutions for domestic non-operator customers such as government agencies, industrial customers and SME's, as well as overseas customers. (Please refer to "Business Overview" for more details)
Q6. What is the distribution service under Business Process Outsourcing (BPO) Service?
Distribution service means distribution of telecommunications services and products. The distribution services of the Group include the wholesale and distribution of communications machineries and handsets, logistics, procurement agency services. Our major customers are telecommunications operators, telecommunications equipment manufacturers, government agencies and medium to large-sized enterprises. (Please refer to "Business Overview" for more details)

As an integrated support service provider, our provision of distribution service enables us to cover both front end and back end services all along the value chain of telecommunications operator customers. This helps us to provide integrated services serving all aspects of the value chain, strengthen our competitive advantage of comprehensive one-stop service provision and promote our service value, therefore improving our customer loyalty and benefiting our long term business development.
Q7. What is the ACO service?
ACO means Applications, Content and Other services. The Group provides system integration, software development, system operation and maintenance support, value-added services to the domestic telecommunications operators, industrial customers and etc. (Please refer to "Business Overview" for more details)
Q8. Does the Company provide share options to its employees?
As a long term incentive and according to the regulations of the government, our Company adopted a share appreciation rights (SAR) scheme to align the interests of target employees with the Company. Under the scheme, a SAR constitutes the right to receive an amount of cash equivalent to the appreciation, if any, in the fair market value of an H share of our Company and the exercise price of the SARs. No shares will be issued under the scheme; accordingly, the shareholding of the shareholders of the Company will not be diluted by any grant of SARs.

Last Updated: 27 May 2015